Let Data Drive Strategy

data on a tablet being considered by an executive
By Mary Beth Sullivan , Mary Ellen Georgas-Tellefsen

6 minutes

The key performance metrics scorecard provides the literal link between strategy and execution.

Either by design or default, all financial services companies have a strategy. Some organizations spend considerable time, money and resources analyzing opportunities, assessing competitive position and developing comprehensive strategic plans. Others have no formal process, relying on an institutional understanding of what the company is and focusing exclusively on managing day-to-day results against established budgets.  

Although process does not determine strategic excellence, the degree to which there is alignment between strategy and execution does impact performance. At the end of the day, a company’s strategy is determined by the sum total of the decisions made and actions taken by management on a daily basis. Providing guidance and a framework for the entire organization to use to make decisions is one of the great accomplishments of a successful strategic planning effort. Strong performers make decisions consistently within a solid framework. Weak performers lack this discipline, making decisions randomly and, certainly, independently of any overriding strategic principles. The result is often a hodgepodge of marginal offerings, disparate market positions, inefficient operating environments, internal conflict, higher risk profiles and a lack of any real competitive differentiation.

The definition of a good strategy is one that is appropriate for a particular institution’s market position, financial structure, risk parameters and, most importantly, ability to execute against key strategic principles and imperatives. In our view, successful strategic planning has four critical components:

1. Fact Base

Collection and reporting of basic metrics and performance data serves as the backbone for strategic plan development. Having a consistent source of verified metrics as well as a process for regular, ongoing reporting helps management teams evaluate performance on an unemotional, fact-based basis and assess what is and is not working. The fact base does not need to be sophisticated algorithms nor place excessive burdens on business intelligence or IT resources. In fact, reporting can be augmented with industry benchmarks and market demographics that are readily obtained from third-party providers if the financial institution does not have a business intelligence group or the ability to collect data internally. In addition, it’s important that the fact base includes information about the external operating environment: changes in consumer and business behavior, the emerging competitive environment, technology trends and the like. 

2. Alternatives

Every company has alternatives to consider in terms of strategy. It’s critical to take a deliberate approach to considering various future scenarios—and weighing the pros and cons of each as well as the alternatives available to creating these future visions of the company. Assessing alternatives is especially important in the financial services industry today, as demographic and competitive changes and continued consolidation (to name just a few factors) continue to shape the industry and the strategic choices of its participants. 

3. Focus

Focus is, perhaps, the most important element of strategic planning. The strategic vision and strategies to achieve must be highly focused to drive day-to-day decisions and actions and not divert attention. Companies that have a strong strategic focus do not dilute their financial and management resources, spend brand equity and/or increase their risk profiles by chasing whatever happens to be “hot” at the moment regardless of their core competencies.

4. Alignment 

Alignment is the key to translating strategic principles into strong business results each and every day. Alignment reflects the degree to which elements of the company’s operating environment—management structure, information systems, performance metrics, recognition and reward programs, etc.—are consistent with and supportive of established strategic, competitive and financial objectives.

For many institutions, creating and analyzing the fact base in support of strategic planning and goal setting can be the most difficult part of the process. However, it is also one of the most important aspects of tying strategy to execution as the metrics provide an unbiased, unblemished report on progress with your plans. 

There are five key sets of facts we include in every strategic planning project. These analytics help us and our clients understand the overall health of an institution and uncover additional, perhaps unknown, issues to be addressed by the process. These metrics are also used to inform and set quantitative strategic targets included in management key performance metric scorecards for ongoing measurement and analysis of how the business is doing in achieving its vision. In other words, the key performance metrics scorecard provides the literal link between strategy and execution.

1. Financial Performance Analytics 

Most financial institutions use peer group financial data to compare performance against peers, set high-level financial targets and establish contribution targets for individual business strategies and investments. However, the comparison must go beyond such high-level performance measures as return on assets or net interest margin. To be most effective, comparisons must also include such performance drivers as deposit mix and growth, loan mix and growth, the composition of earning assets, operational efficiency metrics, and others. A separate comparison can also be made to a group of high-performing companies. Case studies of selected high-performing institutions can be developed to fully understand their business strategies, market focus, and operating environments.

2. Customer Analytics 

Most institutions have a considerable amount of information on their current customer base. The challenge is to organize this data into metrics that can help identify customer acquisition, relationship deepening and retention opportunities, and then to leverage the metrics to drive marketing programs, sales activities and customer relationship management decisions.

3. Market Analytics 

It is important to develop profiles of the geographic markets in which your institution competes to identify growth opportunities and priorities. Ideally, the profile would include information on economic and demographic characteristics, projected growth, concentration of members that fall within targeted segments, financial product usage behavior, and the type and intensity of competition within the market. This analysis highlights the markets, products and segments where the institution may be underpenetrated and can help inform business strategies and establish priorities for member acquisition, cross-sell and retention programs.

4. Operational Analytics 

Most financial institutions have a considerable amount of existing data that can be collected, organized and analyzed to identify efficiency opportunities and track performance. This can be accomplished by calculating a limited number of metrics for each major support and member-facing function and conducting a variance analysis to industry benchmarks. The goal of the analysis is to identify where the institution appears to have an unfavorable variance to industry norms and therefore the opportunity to streamline operations.

5. Channel and Sales Analytics 

It is not only possible, but necessary, to analyze the performance of individual channels (branches, online, mobile, etc.) and sales personnel and map to opportunity and benchmark metrics. This enables management to make informed decisions about the allocation of marketing spending, staffing levels, and where to close, open, or reconfigure offices.

These simple analytics are relatively easy to build and will help inform credit union strategy as well as priorities for investments in sales and marketing, productivity and efficiency improvements, and customer and employee experiences.

In our experience, the financial institutions that create a strong linkage between strategy and execution by focusing on a few strategic priorities, aligning capabilities both vertically and horizontally, and using a reliable fact base will outperform their peers consistently over time.cues icon

Mary Beth Sullivan is the managing partner and Mary Ellen Georgas-Tellefsen is a managing director at CUES Supplier member Capital Performance Group, a management consulting firm based in Washington, D.C.

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